Analyst Sees Brighter Outlook for MGIC's Loans

An analyst at Friedman Billings Ramsey, Arlington, Va., has cut his 2008 loss estimates for MGIC Investment Corp. here by more than half, as the company's first-quarter results were better than anticipated. The cut, from an expected loss of $5 per share to an expected loss of $2.15 per share, also factors in the recent issuance of additional shares in the company.

FBR says it is encouraged by its expectations that MGIC will be slowing the pace of adding to its reserves in upcoming quarters.

MGIC's first-quarter loss of $0.41 per share beat both the consensus estimate of -$1.63 and FBR's -$1.16.

FBR analyst Steve Stelmach noted that MGIC has already built up its reserves by $3 billion. The research firm most recent assumptions call for $5.5 billion of losses incurred on the current book of business. Thus he believes much of the "heavy lifting" in the building of reserves and its negative impact on MGIC's earnings has been completed.

Because of its recent addition to its capital base, FBR said MGIC "is in a much better competitive position relative to many other competitors. Despite the recent downgrade (by Standard & Poor's), we expect MGIC to be able to maintain market share, given what we expect to be capacity constraints at other MI companies that have not yet raised capital."

In fact, he said, he expects Fannie Mae and Freddie Mac to give those A-rated mortgage insurers "a wide berth" if they have submitted an effective capital plan.

As for the remaining AA-rated MI companies, Mr. Stelmach said while they will gain market share, this growth would not come at the expense of MGIC.

Mr. Stelmach also took into account the slowing of the pace of growth in delinquencies at MGIC, but attributes it in part to seasonality. He adds that the 2007 book of business will be among the poorest performers at MGIC.

Separately, MGIC said it plans to hold a special meeting of its shareholders, in addition to the annual shareholders meeting scheduled for May 15.

No date has been set for the special meeting, but the company said it should take place in mid-June.

One of the items to be addressed is to comply with New York Stock Exchange rules to have shareholders approve the issuance of common stock on conversion of the recently issued debentures in excess of 19.99% of the number of shares currently outstanding. If shareholders do not approve, the excess shares would be settled in cash. The other item is to approve a change to increase the number of shares that can be issued.
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